2001 and A Few Years Beyond: What Our Nation’s MDUs Should Expect from Software and Hardware
Jimmy Schaeffler, n The Carmel Group
Some forty to fifty million or more Multiple Dwelling Unit (MDU) occupants (depending upon how you measure their numbers), and many millions more owners, managers and vendors who are tied to their products and services, had better get ready for the next MDU revolution. It’s called The MDU Battle for the Truly Big Pipe.
This battle will be fought on the roof-tops, in the equipment rooms, in the living rooms and bedrooms, and at negotiating tables across the nation. Its winners will take home millions, if not billions, in revenue, as well as the hearts, souls and futures of the MDU audience. This kind of power is possible because the future of telecommunications, the media and computers in the MDU home and business is essentially one of the most important pipes into their lives. As a set of utilities, within a few years, this pipe will gain more and more importance to the point where it will supplant even water and electricity in essential value. Put shortly, take away my shower, but leave me my bundled access to telephone, video, Internet and other services.
The following is a condensed review of some key hardware and software developments, with an eye to important trends and numbers, where appropriate. The first major section drills down a bit into new types of enhanced software services, followed by a second section that looks at four new types of devices that will enthrall MDU-based consumers.
New MDU Software?
Interactive TV (ITV)
In addition to new functionalities like Personal Video Recorders, game consoles, and Digital Satellite Radio (see below), ITV is expected to be huge. Why so? In large measure because of the huge pent-up demand that has been created by passive, innovationless, standard video TV. With this year's merging of TV and enhanced broadcast technology, a new generation of interactive TV (ITV) appears ready to revolutionize the traditional means of passive media distribution. By year-end 2001, The Carmel Group estimates 4.4 million U.S. TV users will be interacting with their TV sets via a stand-alone device, a cable and/or Direct Broadcast Satellite (DBS) set-top box. A large number of these will be MDU-based clients. The continuous and aggressive adoption of these new ITV services from cable and DBS providers will suggest a five-year forecast yielding 61.5 million ITV users by year-end 2006.
At its core, ITV is a combination of the Internet and enhanced broadcasting, molded together with advanced software programs and key hardware components. A consumer's receives a rich, multimedia experience that brings many new things to the table. These include interactive broadcast programs, Web access, e-mail, online shopping, games, personal TV (i.e., pausing live TV and recording personal shows), and music downloads, to name a few.
The following is a specific listing of the types of ITV that are now flourishing in other parts of the world, and are expected to make land in America during the next year to three.
– Communication services (e.g., email, chat),
– Games (e.g., low-end video games, personality testing, brain teasers, crossword puzzles, etc.),
– Home shopping (e.g., home and grocery),
– Sports (e.g., soccer),
– Weather data,
– Banking and financial services (e.g., home insurance, mortgage information, etc.),
– Travel services,
– Interactive advertising, and
– Miscellaneous entertainment (e.g., industry gossip, polls, etc.).
Focusing on revenue models and the cable MSOs, consumers will be allowed to receive ITV applications in three different ways: 1) it will be provided for free; 2) it will be provided on a subscription basis; and 3) it will be provided on a pay-per-click basis. The following provides a more detailed view of the prime applications that we believe will help ITV reach critical mass. These applications include Video-On-Demand (VOD), Electronic Programming Guides (EPG), Interactive Games, T-Commerce, Internet Access, and Personal TV.
Electronic Programming
Guides (EPGs)
Satellite television, along with cable’s transition from analog to digital, has given the consumer a multitude of channels from which to choose. Similar to what portals like AOL, Yahoo! and Excite have done for Web browsing, EPGs promise the consumer an easy way to navigate the "500 channel universe" that is quickly becoming the standard for television today. It is no stretch to say that these guides will be the portals of ITV and will adopt similar revenue models as the Internet portals mentioned above. Some studies have shown that consumers with access to an EPG access it an average of six times a day. That frequency of viewing makes an EPG’s real estate very fertile and valuable to potential advertisers and T-commerce companies. Gemstar-TV Guide International (www.gemstar.com) is the early leader in this space, however, most personal TV companies, satellite and digital cable providers are including an EPG along with their other services. If the success of the Internet portals is any indication, tomorrow’s EPGs will be a key revenue source for ITV.
T-Commerce
Television commerce (T-commerce) is also expected to be a boom in the coming era of interactivity. Enhanced television will allow the consumer instant access to additional product and service information with the push of a button. Viewers will be able to see different makes or models of clothing, cars, etc. and then purchase the one that suits them best. Another possibility is that the information would be sent to them via the mail or to an e-mail address. Other intriguing possibilities include watching a video on MTV or VH1 and being able to purchase the entire CD with the click of a button on a remote control. Yet the TV does have one distinct advantage over the Internet, as far as commerce is concerned. TV, more than any other medium can capture and monetize a consumer's impulse. As an example, imagine the marketing opportunities after a record setting performance by a team or a player in the Super Bowl. With a captive audience of millions, team merchandise sales could skyrocket on impulse buys alone.
Interactive Games
Since the inception of TV many decades ago, game shows have been a staple of television. Today, the success of newer game shows like Survivor and Who Wants To Be A Millionaire? continue to draw huge audiences. Imagine now allowing the viewer to compete for prizes in one of these programs against millions of other users. By adding an interactive layer to broadcast and cable networks’ game shows, these companies allow the consumer to compete for prizes. Another aspect of the interactive gaming market that cannot be ignored is the video game console market. With over 30 million U.S. households actively using a video game console today, that market is primed for network gaming. In other words, a consumer is now able to play against anyone in the world who has the same hardware and software (See, below re: Game Consoles).
Video-On-Demand (VOD)
VOD is at the same time both the one service that is mentioned more than any other and the one service that has been promised to consumers for the longest period of time, and yet never truly developed. Imagine not being able to surf the Internet or go to a movie rental store, except for one hour or half-hour per week on Tuesdays. That’s essentially the obstacle that ITV seeks to overcome, primarily via VOD services. VOD promises to change scheduled television by delivering the same flexibility and interactivity that the Internet has given many consumers.
Surfing/Email/Chat
Many analysts and observers believe that the real future of the Internet lies on the TV, not the PC. There are several reasons for this optimism. First, the television is in almost 99% of all homes in the U.S. vs. the PC’s rising 50%. Second, the television is still the center of entertainment in the vast majority of U.S. homes, which becomes more and more important as the Internet transitions from an information superhighway to an entertainment superhighway. Lastly, an Internet-ready set-top box is more affordable than a PC. If lessons are to be learned from America Online and WebTV’s success, it is that while consumers do enjoy the full capabilities of web browsing and surfing, it is often telecommunication’s tools (e.g., e-mail, chat rooms, and instant messages) that are the most frequently accessed tools of today’s Internet. As the web evolves more into a content delivery platform of tomorrow, however, consumer will demand access to the growing entertainment medium that is the Internet.
New MDU Hardware?
• Digital Satellite Radio (DSR): This service will deliver hundreds of digital radio signals via numerous satellites to users across the continent, for a relatively low monthly subscription fee of about ten dollars. Initial marketing will focus on motor vehicles, however, rest assured, dwellings and offices are not far behind. This new satellite-delivered radio service will, like Direct Broadcast Satellite (DBS) about seven years before it, completely change the way we have done things in several environments, not the least of which is inside many of the U.S.’s 200+ million registered automobiles. DSR will tap into a huge pent-up demand for ad-free, reception-anywhere type audio services. Two companies, Sirius (Nasdaq: SIRI) and XM Satellite Radio (Nasdaq: XMSR), will carry all the signals, and between them the two have allied with companies such as Jaguar, Volvo, Mazda, Honda, Acura, BMW, Daimler Chrysler, Ford and GM, as well as Freightliner Trucks and Sterling Trucks. Sirius and XMSR are also notable for their ability to forge an alliance, allowing consumers to operate a common, standardized hardware unit, from which consumers can buy either or both services, and as a couple of today’s better stock values. For MDU aficionados, the opportunity here may come in working with one or both of these companies to make sure the DSR experience transfers from the car to the apartment or other MDU.
• Personal Video Recorders (PVRs): Again lead by the satellite sector, The Carmel Group estimates that PVRs will move from approximate year-end 2000 sales of almost 400,000 units, to approximately 13 mil. by 2005. MDUs will make up more than a million of these sales. Yet, the real success story in the PVR space will not be the standalone devices, but rather the PVR subscription service that will be built into cable and satellite set-top boxes (STBs), or into central MDU servers that can service multiple units within a single MDU building. PVRs will allow a whole new generation of TV users to forge way beyond the VCR technology of the eighties and nineties. Pause, customization of programming, replay, and record are the features that will quickly move into the "must have" category for a largely growing chunk of today’s 75+ million subscription TV consumers. WebTV, ReplayTV, and TiVo have been this segment’s first generation pioneers, followed more recently by companies and services such UltimateTV by Microsoft, Metabyte’s MbTV, News Corp.’s NDS service XTV, and similar hard drive offerings by Philips and other set-top box manufacturers.
• Digital Versatile Disks (DVDs): DVDs for video monitors and personal computers (PCs) are expected to continue showing their potential during this year’s holiday buying season. In fact, DVDs have already risen to the top of the list of "fastest growing consumer electronics products of all time." There is continued great potential for DVDs, especially because of their small size and versatility, and for the fact that several of the new game consoles will soon also offer DVD capability. With DVDs, content proliferates yet again. By year-end 2000, there will be ten million installed DVD players distributed into the consumer electronics (CE) market place. Price points are continuing to drop into range of $100 for lower end models, which further serves to bring these products into the mass market arena, and brings it closer to the perfect affordable choice that so drives CE products. MDU owners and managers are advised to keep an eye toward incorporating this and several of the services below, whenever negotiating with cable and satellite providers for new set-top boxes (STB) and new STB functionality.
• Game Consoles: The presence of companies such as Microsoft (with its XBox), Nintendo (with its GameCube), Sony (with its PlayStation2), Sega (with its DreamCast) and InDreama, with each offering new game set-top box devices in the $199-$299 range, gives great credence to this subsector of today’s consumer electronics industry. They are also devices that are worth considering, if certain MDU owners are looking to draw strong audiences to their properties. Soon video-on-demand (VOD) will find its way into these types of game consoles. Additionally, the higher memory performance and processing capability of these new game consoles will often exceed that of today’s cable and satellite set-top boxes. Like DVDs above, these types of ancillary services are going to draw special audiences, especially at the time when the landlord-tenant relationship is being formed. Put another way, there was a time when adding a refrigerator to an MDU was considered a "step up," i.e., it was often done to draw a better level of tenant. In that vein, devices like game consoles may well become the 2004 equivalent of a 1900s refrigerator.
About the Author
Jimmy Schaeffler researches, analyzes and writes this regular column for Private Wireless & Broadband. He is a subscription TV and consumer electronics analyst at The Carmel Group (www.carmelgroup.com), a publisher and consultancy based in Carmel-by-the-Sea, CA. The company specializes in telecommunications, computers and the media. The author may be contacted with questions or comments via e-mail at jimmy@carmelgroup.com or by telephone at 831-643-2222.